TCS slashes variable salary component by 10%

CIOL Bureau
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MUMBAI: Layoffs and salary cuts were the buzzwords of the yesteryears, when the economy was passing through tough times-Tata Consultancy Services (TCS), however, did the 'unthinkable' when the economy had started showing all signs of revival.


In an unprecedented move, the Rs 4,914 crore Indian IT giant has revised its salary-structure across the board resulting in an average 10 per cent deduction in the variable salaries of employees. This, sources in TCS suggest, has been done to tide over the reducing operating expenses triggered by the increasing billing pressure.

According to the new incentive norm that has come into retrospective effect from April 1 this year, while the basic salary for all TCS employees remains the same, the company has slashed the variable component, including the annual performance bonus, across the board. This, reports suggest, would effectively bring down the compensation by 5-25 percent. Employees have also complained about reduction in other variable components as well. The company released the appraisal letters according to their Economic Value Add (EVA) model on Friday.

TCS has also changed the disbursement cycle of performance-linked incentives-from monthly to quarterly-leading to a reduction in the monthly take home salary. In real term, however, the quarterly disbursement would not have any impact on the overall salary.


Informing the employees about the new incentive scheme through a webcast, TCS CEO, S Ramadorai said that though the company crossed the $1 billion mark in terms of revenue, its profit margins during 2002-03 went down substantially due to low billing rates. “If TCS was to achieve the target $10 billion revenue by 2010-which in fact is TCS' vision statement-some corners have to be cut,” he said.

Employees at TCS, however, suggest that “its not just some corners” that the company has decided to cut. TCS' VP for Corporate Communications Atul Takle, however, denied it. “Salaries have not been cut, performance bonuses have been,” he said. According to him, there might be some confusion amongst the employees about the monthly take home that might have gone down in some cases. “Salary is notional in this case because one usually starts considering the monthly performance-linked bonus as part of it. They are down for those who have performed below par. However, for those whose have `over performed,’ salaries or the take home, have increased,” he said.

TCS has also made some changes in its appraisal structure to make it more performance-oriented. Performance would now be calculated on the basis of EVA to the company. The higher the EVA, higher would be the chances of getting promoted. Performance at TCS is measured on a scale of 1 to 5. There are also six hierarchical levels, with assistant system engineer forming the lowest rung.


The company has been facing the heat for sometime now in terms of pressure on billing rates, client acquisition, productivity and profitability. The company registered a growth of 6.5 per cent points slower than the industry average and 15 per cent points lower than its own growth rate over the previous year.

The dynamics of global IT services industry have changed and this change is now visible more than ever. With off-shoring gaining prominence, the flow of business is expected to be strong albeit at lower rates. For Indian companies, limiting attrition levels to the minimum has become a key issue now. With MNCs like Accenture and EDS having set up offshore development centers in India, billing rates would go down further. But for the Indian programmer or software engineer, these MNCs mean higher salaries. In light of this, companies like TCS could expect significant levels of attrition.